Financial Transaction Tax in Spain: on overview

On 16 October 2020, Law 5/2020 of 15 October 2020 on the Spanish Financial Transactions Tax (hereinafter, the "FTT" and the "FTT Law" as appropriate) was published in the Spanish Official Gazette.

The FTT is a new indirect tax, implemented at the national level, following the line adopted by neighbouring countries, such as France and Italy. The purpose of the FTT is to tax transactions that are not subject to any current indirect taxation.

Taxable event

The FTT is levied on acquisitions for consideration of shares in certain Spanish companies. The FTT is based on the so-called "principle of issue", as opposed to the "principle of residence". As a result, the scope of the FTT is wide, and it applies to any acquisition for consideration of shares in Spanish companies, regardless of the tax residence of the parties to the transaction, or the place where the transaction occurs.

Scope of the FTT

The FTT does not apply to all acquisitions of shares in Spanish companies, but only to those shares that meet the following conditions:

• the shares are listed on a regulated market in Spain or another European Union State, or on a market considered to be equivalent in a third country; and
• the market capitalisation value of the company at 1 December of the year prior to the acquisition is greater than 1,000 million euros.

The Spanish Tax Administration Agency is expected to publish a list of in-scope shares before 31 December each year.

Acquisitions of shares that meet the aforementioned conditions will be subject to the FTT regardless of how the share transfer is carried out. This means that shares traded on a trading venue, on an MTF or OTF, or OTC will be subject to the FTT.

Other key acquisitions subject to the FTT

The FTT will also apply to the following transactions:

1. acquisitions for consideration of certificates of deposit representing taxable shares (e.g. ADRs);
2. acquisitions of shares or certificates of deposit resulting from the execution or settlement of convertible or exchangeable bonds or debentures;
3. acquisitions as a result of the settlement of derivatives, where this leads to the acquisition of the underlying; and
4. acquisitions as a result of the settlement of any financial instrument or of certain financial contracts that are not covered by 1. to 3. above.

Exemptions

The following, among others, are exempted from the payment of FTT:

• acquisitions carried out on the primary market (e.g. from the issuance of shares);
• acquisitions necessary for the proper functioning of the market, such as those in accordance with Regulation (EU) 596/2014 on Market Abuse;
• acquisitions carried out by CCPs;
• acquisitions carried out by market makers;
• acquisitions in the context of restructuring, provided that certain conditions are met;
• acquisitions made between companies of the same corporate group; and 
• acquisitions of treasury stock covered by a repurchase program.

The exemptions may be amended each year by the Spanish General State Budget Law.

Tax base

General Rule

The FTT will be charged on the amount of the consideration for the acquisition, without including the costs and expenses associated with such transaction (e.g. brokerage fees).

Special rules

The FTT Law provides for certain special rules to determine the amount of tax in those cases in which the acquisition of the securities is derived from the execution or settlement of convertible or exchangeable debentures or bonds, of derivative financial instruments, or of any financial instrument or contract, as well as in the case of same-day acquisitions and transfers.

Taxpayer and case of joint and several liability

Taxpayer

In general, the purchaser of the relevant shares will be the taxpayer, regardless of their place of establishment. That said, the FTT Law provides further detail on which entity must file the tax return, again regardless of their place of establishment:

• the investment firm or bank making the acquisition on its own behalf;
• where the acquisition is made on a trading venue, the taxpayer will be the member of the market that executes the transaction. However, when one or more financial intermediaries are involved in the transmission of the order to the trading venue member on behalf of the ultimate purchaser, the taxpayer will be the financial intermediary that receives the order directly from the acquirer;
• where the acquisition is executed outside a trading venue, but within the scope of the activities of a systematic internaliser,¹  the taxable person shall be the systematic internaliser itself. However, when one or more financial intermediaries are involved in the transmission of the order to the systematic internaliser on behalf of the ultimate purchaser, the taxpayer will be the financial intermediary that receives the order directly from the acquirer;
• where the acquisition is made outside a trading venue and not from a systematic internaliser, the taxable person shall be the financial intermediary that receives the order from the purchaser of the securities, or delivers them to the latter by virtue of the execution or settlement of a financial instrument or contract; and
• in default, where the acquisition is executed outside a trading venue and without the intervention of any of the person or entity referred to in the preceding paragraphs, the taxpayer shall be the entity that provides the service of depositing the securities on behalf of the acquirer. In this case, the acquirer must notify the depositary of the obligation to pay the tax, as well as the amount of tax to pay.

Joint and several liability

If a purchaser has communicated incorrect or inaccurate information to the taxpayer, which leads to the incorrect application of an exemption or lower amount of tax to pay, the purchaser is made jointly and severally liable with the taxpayer for the FTT.

Accrual

The obligation to pay the FTT will accrue when the relevant shares or securities are registered for the benefit of the purchaser.

Tax rate

The FTT will be levied at a rate of 0.2 percent. The tax rate may be amended by means of the Spanish General State Budget Law.

Management of the tax

Tax period

The FTT will be payable on a monthly basis.

Deferral or payment in instalments of the tax debt

Payment of the FTT cannot be deferred or paid in instalments.

Payment system

The FTT will be a self-assessed tax. Taxpayers will be able to pay the tax through a central securities depository established in Spain.

This system for filing and paying the tax may be extended to other central securities depositories established in other European Union States, or in third-country States, such system to be established by means of collaboration agreements signed with a central securities depository established in Spanish territory.

System of infringements and penalties

There is no FTT-specific penalty regime. Accordingly, penalties will be governed by the Spanish General Tax Law.

Entry into force

The FTT Law will enter into force on 16 January 2021.

Transitional regime

The FTT Law provides for a transitional regime for acquisitions of in-scope shares that take place between the date of entry into force of this Law (16 January 2021) and 31 December 2021. In this period, the stock market capitalisation value requirement will be deemed to have been met when, one month prior to the date of entry into force of this Law, such value exceeds 1,000 million Euros.

1. As defined in MiFID II, A systematic internaliser (“SI”) is an investment firm which is a counterparty dealing with its proprietary capital on an organised, frequent, systematic and substantial basis outside of a regulated market, multilateral trading facility or organised trading facility. An SI is not a trading venue itself, nor does it operate a trading venue.